Liquidity Services, Inc.

Welcome to Liquidity Services Incorporated second quarter fiscal year 2021 financial results conference call. My name is Vanessa and I will be your operator for today's call. Please note that this conference is being recorded. At this time all participants are in a listen only mode. Later we will conduct a question and answer session. On the call today are Bill Engrick, Liquidity Services Chairman and Chief Executive Officer, and Jorge Zelaya, its Executive Vice President and Chief Financial Officer. They will be available for questions after their prepared remarks. The following discussion and responses to your questions reflect Liquidity Services Management's views as of today, May 6, 2021, and will include forward-looking statements. Actual results may differ materially. Additional information about factors that could potentially impact the financial results is included in today's press release, and in filings with the SEC, including the most recent annual report on Form 10-K. As you listen to today's call, please have the press release in front of you, which includes liquidity services financial results, as well as metrics and commentary on the quarter. During this call, Liquidity Services Management will discuss certain non-GAAP financial measures. In its press release and filings with the SEC, each of which is posted on the website, You will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures. Liquidity Services Management also use certain supplemental operating data as a measure of certain components of operating performance, which they also believe is useful for management and investors. This supplemental operating data includes gross merchandise volume, and should not be considered a substitute for or superior to GAAP results. At this time, I will turn the presentation over to Liquidity Services CEO, Bill Angrick.

Good morning, and welcome to our Q2 earnings call. I'll review our Q2 performance and provide an update on key strategic initiatives. Next, Jorge Celaya will provide more details on the quarter. Our business delivered strong results across all segments in Q2 and continues to benefit from strong momentum and customer adoption of our solutions, resulting in our third consecutive quarter of substantial year-over-year growth. We are grateful for our team's efforts to safely deliver outstanding results for our customers both in our fulfillment centers and remotely during the quarter. In summary, Our business is at the intersection of several powerful market forces that will benefit liquidity services for years to come. First, broader market adoption of the online economy continues to drive strong demand for our online platform and services from both new and existing customers in the retail, industrial, and government markets. Second, our e-commerce marketplace solutions continue to power the circular economy which benefits businesses, society, and the environment. We achieve this through our safe and effective resale and redeployment of surplus assets, our reduction of waste, carbon emissions, and transportation costs, and by creating markets for items that would otherwise be landfill. Large enterprises, small businesses, and government entities are increasingly turning to liquidity services as they seek safe and effective strategies for maximizing the value of surplus assets and delivering on their sustainability initiatives. Our Q2 results demonstrate that our RISE strategy has positioned us well to address customer needs against these broader market trends and capture increased transaction volumes. As the world seeks to be a better steward of the environment, we look forward to continuing to work closely with our customers and stakeholders on our mission to build a better future for surplus. And this is translating into results. Consolidated GMV was up 44% year over year. The number of auction participants on our platforms was up 14% year over year. Our completed transactions rose 16% year over year. And we grew our adjusted EBITDA by $10.9 million over the prior year period. We anticipate our trailing 12-month adjusted EBITDA should reach $36 million as we exit the June quarter, even as we continue to invest in growing our business. GMV in our GovDeals segment grew a record 44% over the prior year's comparable quarter as more government agencies utilized our digital platform and transacted higher volumes across a larger breadth of key categories, including transportation and real estate. And our growing buyer base and automated asset promotion tools drove higher realized values through our marketplace. Of note, during Q2, we signed the state of Ohio, city of Tallahassee, Florida, and the Washington Metropolitan Transit Authority, among others. And we continue to have a robust sales pipeline. In addition, our government agency clients appreciate that our solutions have been successful in reducing CO2 emissions from urban areas through the use of our online marketplace for the sale of vehicles and heavy equipment. GMB and our retail supply chain group segment grew 32 percent over the prior year's comparable quarter, as large and SMB retail sellers utilized our online platform to capitalize on secular growth in online retail, and we expanded our capacity to serve the resulting higher transaction volumes on our marketplace. GMV and our capital assets group segment increased 65% year-over-year, driven by continued growth of our industrial and heavy equipment categories. and increased the use of our consignment model internationally. Our machinio segment grew revenue by 31% year-over-year as global equipment owners and dealers continue to embrace our digital marketing solutions to acquire buyers at lower costs when compared to traditional marketing channels. Our newest marketplace, allsurplus.com, continues to gain traction as new buyer registrations grew nearly four-fold from a year ago, and we continue to see strong buyer activity and GMV growth in key asset categories such as transportation, construction, real estate, consumer goods, and biopharma. Through our domain expertise, innovative technology platform, and integrated services, we are driving the continued digital transformation of the reverse supply chain across the retail, industrial, and public sector markets, which together comprise a $100-plus billion market opportunity for liquidity services. Overall, our strategy and platform investments have yielded strong results to date and we are well aligned to customer needs in a changing landscape with higher e-commerce demand. We have strong activity in our sales pipeline, and we are optimistic about our growth prospects. Against this backdrop, we remain focused on our goal of eclipsing $1 billion of annualized GMV by continuing to execute our RISE strategic plan. In closing, We thank our team members across liquidity services for their dedication to our mission, and we are excited to continue our role as a global market leader to create value for our customers and our shareholders. I will now turn it over to Jorge for more details on the quarter.

Thank you, Bill. Good morning. Good morning. We completed the second quarter of fiscal year 2021 with GMB of $207.3 million, a 44% increase from $144.3 million in the prior year's comparable period. Revenue for the second quarter was $61.8 million, a 17% increase compared to the same quarter last year, while net income for this second quarter was $5.3 million, resulting in diluted earnings per share of 15 cents. Our results compared to the same quarter last year have shown significant improvement. Non-GAAP adjusted EBITDA was $9.4 million, a $10.9 million improvement. Our profitable results these past four quarters speak to our market leadership position that has enabled us to take advantage of the accelerated secular trends in e-commerce growth and the actions we took to reposition ourselves as a leaner business model focused on leveraging growth to enhance platform services. We continue to look for ways to work our platform and complementary service capabilities to the advantage of our customers to expand market share and to generate results for our investors. The second quarter fiscal year 2021 comparative year-over-year consolidated financial results reflect increased volumes across all our segments as we have diversified our customer base across large enterprise to small businesses and government entities, which continue to benefit from our safe, effective, and sustainable e-commerce solutions. Our higher proportion of service and consignment revenue that includes our self-service solutions has resulted in improved gross profit margins to 57% this quarter from 50% last year. We have also experienced improved margins from the mix of products sold and asset recovery rates achieved, partly influenced by favorable macroeconomic trends in certain asset categories, and by the unprecedented access our platform provides our significant buyer base and our leadership position in our marketplaces. Our bottom line results reflect our overall increase in top line volumes across our segments, our higher gross profit margin, and the leverage of our operating expenses. A key goal of our multi-year business transformation and investments in our technology has been to enable us to leverage our platform for scale and more profitable results. We are pleased in our ability to have sustained solid performance this past quarter. Specifically, comparing these second quarter results to the same quarter last year, our GovDeal segment was up 44% on GMV and 40% on revenue. Our retail RSCG segment was up 32% on GMV and 8% on revenue, and our CAG segment GMV was up 65% or 35% up on revenue. Machinio's revenue was up 31%. Changes in service mix, such as a greater proportion of consignment activity, can result in recording lower revenue growth compared to GMV growth, yet produce a higher gross profit margin as a percent of revenue. We have a debt-free balance sheet at the end of the quarter with $87.6 million in cash, up $9.8 million from last quarter, having completed $12 million in stock repurchases during the quarter. We used the $2 million of share repurchase authorization that remained from the first quarter of fiscal year 21 and completed the entire $10 million share repurchase authorization announced on March 8th. On May 3rd, earlier this week, we received a $50 million share repurchase authorization. Please refer to our 10Q for details on this and the quarter. Looking ahead, we continue to see a solid pipeline, expanding customer relationships, and other long-term indicators of positive performance, and we believe we are well-positioned to create value by focusing on leveraging our e-commerce platform services. Our third quarter of fiscal year 2021 guidance range is above our results for the same period last year, reflecting increased transaction volumes from the accelerated market adoption of the online economy that is creating strong demand for our services from both new and existing customers seeking to access our growing buyer base and maximizing their recovery rates using our platform. Last year's third quarter of fiscal year 2020 Results did reflect the most significant economic restrictions at the onset of the COVID-19 pandemic that caused seller backlog accumulations and created substantial transaction delays, much of which was recovered starting in the fourth quarter of fiscal year 2020. Management guidance for the third quarter of fiscal year 2021 is as follows. We expect GMV to range from $220 million to $230 million. GAAP net income is expected in the range of $4.5 million to $6.5 million with a corresponding GAAP diluted earnings per share ranging from 13 cents to 18 cents per share. We estimate non-GAAP adjusted EBITDA to range from $8 million to $10 million. Non-GAAP adjusted diluted earnings per share is estimated in the range of 17 cents to 21 cents per share. This guidance assumes that we have approximately 35.5 million diluted weighted average shares outstanding during the third quarter of fiscal year 2021. Thank you. We will now take your questions.